May issue 2018
The Loan Rangers
On April 17, 10 days before announcing the federal budget, Miftah Ismail, the Advisor to the Prime Minister on Finance, left for Washington for talks with officials of the World Bank (WB) and the International Monetary Fund (IMF).
During the visit, Miftah Ismail held multiple meetings with WB and IMF representatives, reassuring them that their previous concerns about the Pakistani rupee being overvalued was addressed.
The State Bank of Pakistan (SBP) devalued the rupee by over 9.5% in four months, leading up to the economic advisor’s meeting with the WB and IMF officials.
Trading on April 25 epitomised the panic in the open market as the rupee plunged to Rs119.5 against the US dollar, amidst speculative buying ahead of the budget announcement, even though Miftah Ismail had reiterated – at home and in the US – that no further devaluation was planned.
In his meeting with the Chief Executive Officer, WB, Kristalina Georgieva, the economic advisor also managed to underscore India’s non-adherence to the Indus Waters Treaty (IWT) and New Delhi’s construction of hydropower projects that breached the agreement.
Even so, despite the odd positive sound bite here and there, Miftah Ismail’s US trip failed in fulfilling its main objective: an agreement on a loan worth $13 billion to repay old loans and bridge the plunging forex reserves, with the election looming.
Despite the rhetoric in government circles that Pakistan ‘would not seek any loan from the IMF,’ that is precisely what the intention of the US trip was, multiple sources from the foreign and finance ministries confirm. However, with no realistic expectations of an IMF loan coming through, the aim was to muster something from the WB, the Asian Development Bank (ADB) or even the Islamic Development Bank.
“What we have is the ADB’s interest. Now we have to meet the conditions and give a convincing plan of action ahead of next month,” a senior diplomat said.
“But why is the government boasting of not needing another IMF bailout, when Miftah Ismail is clearly looking for the same elsewhere?” asks senior financial journalist and FX Empire analyst, Shahab Jafry.
“And let’s not forget that the money that the government is looking to borrow is to pay off the previous debt. The government hasn’t even begun to address its failure to generate revenue.”
Jafry warns that Pakistan’s economic figures ‘could get even uglier’ ahead of the elections, with the billions of dollars still being sought. He says failure to generate that money could result in a collapse of the rupee similar to the Argentinian peso, which fell 15% against the dollar in 2017, after drops of 34% and 18% in 2015 and 2016 respectively.
Diplomatic sources also confirm that in addition to the search for a potential bailout, Miftah Ismail also held meetings with US officials to address the Financial Action Task Force (FATF) concerns, which following the February meeting – where Washington called an unprecedented second vote against Islamabad – has put Pakistan on the brink of blacklisting.
“The IMF doesn’t give you anything, if the US is mad at you,” a Foreign Office official says. “And since Washington single-handedly sanctioned Pakistan’s grey-listing and put us under threat of being blacklisted ahead of the June meeting, we’ve had to try to address US concerns.”
But no US aid is forthcoming anytime soon. What is also ominous is that in the second round of vote in Paris, the US also managed to get Saudi Arabia and China to withdraw their support for Pakistan, with Turkey alone voting in Islamabad’s favour.
Former Foreign Secretary of Pakistan, Shamshad Ahmad, dubs Pakistan’s manoeuvres in the US last month as an ‘abysmal failure’ of the state’s foreign policy.
“Nearly 90% of our foreign policy has been full of economic content, which in turn has four elements: trade, investment, aid and loans. And I can’t remember a day throughout my service where Pakistan’s diplomacy didn’t centre around begging,” he says.
“That’s not because we [the diplomats who carry out these tasks] are fond of begging, but because our rulers – current or old, civilian or military – have all endorsed the belief that Pakistan can’t survive without begging.”
Shamshad Ahmad says, without the rule of law and accountability for all, Pakistan’s foreign policy will always be skewed against it, with a failure to create an economic environment conducive to trade and investment.
“Our foreign policy centres around aid and loans – and not trade and investment. And because our industrial wheel doesn’t run, hence we have nothing to sell,” he says.
“For investment there needs to be an environment of law and order, along with a policy framework that has consistency of government approaches. Why would people invest from overseas, when our own rulers steal our money and invest it abroad?”